US Small-Business Rent Delinquencies Rise to a Three-Year High
The delinquency rate for US small businesses climbed to a three-year high this month, reflecting the impact of rent spikes and declining revenue, according to a monthly survey.
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The delinquency rate for US small businesses climbed to a three-year high this month, reflecting the impact of rent spikes and declining revenue, according to a monthly survey.
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Oct 20, 2021
BNN Bloomberg
,It might be tempting for homebuyers to choose a cheaper variable mortgage rate over a fixed rate right now, but one mortgage expert warns those buyers might be “rolling the dice” – especially if the Bank of Canada is forced to hike its benchmark interest rate sooner than expected.
Rob McLister, mortgage columnist with The Globe and Mail, pointed out in an interview Wednesday that five-year fixed mortgage rates have been rising, leaving a sizeable gap of around 80 to 90 basis points compared to variable rates, which move in tandem with the Bank of Canada’s benchmark policy rate.
Historically, homeowners have flocked to fixed rates, since their payments will be known for the term of the mortgage, but that trend has been reversing recently and variable rate mortgages have gained in popularity.
“A lot of people are just taking variable – you know, just rolling the dice,” he said. “It’s kind of like picking up a penny in front of a steaming locomotive. I think the Bank of Canada might be forced to act more aggressively than a lot of people are expecting – and that 75- to 100-basis point advantage in a variable rate can disappear very quick,” he said.
Businesses and consumers have absorbed another month of high inflation as the latest Statistics Canada data show consumer prices rose 4.4 per cent in September from a year earlier, marking the biggest jump since February 2003.
While Bank of Canada Governor Tiff Macklem has repeatedly said he believes the spike in prices will be temporary, Scotiabank Economist Derek Holt disagrees and is predicting the Bank of Canada will need to hike rates as many as eight times by the end of 2023, bringing the benchmark rate to 2.25 per cent.
“Eight rate hikes in a couple years might sound like a lot to people because people have been convinced that inflation is transitory and the Bank of Canada is reliable to keep inflation near target,” McLister said. “But we haven’t seen inflation like this. You know, next month we could see core inflation at a 30-year high. People aren’t used to this kind of inflation pressure and the risk that it brings to rates.”
Even if Holt’s outlook materializes, McLister doesn’t think it will have a significant impact on the mortgage market since homebuyers are subjected to the Office of the Superintendent of Financial Institutions’ (OSFI) stress test – meaning buyers must prove they can handle their mortgage payments at interest rates of at least 5.25 per cent.
Where he does see a big risk for the Canadian housing market though is if OSFI increases the minimum rate for its stress test.
“Home prices can’t just keep marching higher,” McLister said. “There comes a point where only so many people can afford a home and qualify for a mortgage.”